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We Support AREAA And REALTORS® In Helping Homebuyers Realize The Rewards Of Homeownership As a REALTOR®, understanding the complex purchase market and working with the right lender can go a long way toward building your bottom line. That’s where we come in! You can feel confident knowing Wells Fargo Home Mortgage has the strength and stability of a well-established lender. With our value-added programs and services, including FHA home financing, you can help make your homebuyers’ goals a reality. As the #1 lender of FHA loans1, we provide: • Options — Your clients can choose from fixed-rate payments or adjustable-rate2 introductory products • Flexibility — A wider range of income, debt, credit, down payment and closing cost options allowed vs. conventional loan products • Convenience — Your buyers may qualify for low down payments on the purchase price of the home with no mortgage payments held in reserve • Assumable — Qualified buyers may be able to take over the seller’s existing mortgage and interest rate • Opportunities — Your clients may be eligible for increased loan amounts in certain metropolitan areas with higher housing costs3
Email WFHMAsian@wellsfargo.com to schedule a custom FHA seminar for your agents. 1. Based on first quarter 2008 statistics by Inside Mortgage Finance 6/6/08. 2. Rate is subject to increase after consummation. 3. Increased FHA loan amounts are only available on loans approved by December 31, 2008. Increased conforming loan amounts are only available on loans closed through December 31, 2008. Wells Fargo Home Mortgage is a division of Wells Fargo Bank, N.A. © 2008 Wells Fargo Bank, N.A. All rights reserved. #59667 8/08-11/08
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MARCH
/ APRIL 2009 1, NUMBER 3
VOLUME
F EATURES 14
The Crumbling American Dream BY SCOTT HOOVER Will President Obama and the new administration be able to stop the carnage?
14 20
Stopping Foreclosures BY SCOTT HOOVER
22
Fixing the Problem BY SCOTT HOOVER AREAA members offer their advice regarding the housing crisis facing the U.S.
24
Tightened Mortgage Spending BY BRIAN CHUNG
25
Bridges to Homeownership BY KIMBERLY PARK
28
Credit Repair BY BRIAN C. ABER Do it yourself or hire a credit restoration company?
30
AREAA 2009 Policy Goals
32
Condo-Hotels Booming with Potential BY LARRY COHEN Hot Trend in Vacation Homes Appeals to Baby Boomers
36
28
Networking 101 BY ED CRAIN AND DR. IVAN MISNER Knowing What Not To Do
40
(Re) Introducing PAM BY PAUL IMURA A proven method of helping all borrowers meet down payment requirements
42
Here to Help BY SCOTT HOOVER Wells Fargo continues to strengthen minority partnerships
46
46
Eleven Keys to Getting Your Short Sale Sone BY CHIP CUMMINGS
48
11 Keys to Getting Your Short Sale Done BY CHIP CUMMINGS, CMC
52
Capital Times: AREAA in Washington D.C. BY SCOTT HOOVER
D EPARTMENTS
52
2
4
ON THE COVER Allen Chiang in Washington D.C.
CORRECTION: Last month A/R/E failed to mention that Photographer David Ng should be credited The Challenges Ahead with all the convention photos within the January/February issue of A/R/E. We apologize Economist Outlook for this oversight. Understanding Today’s Economy — By Dr. Tucker Adams
Editor’s Letter
March / April Advertisers Bank of America Mortgage . . . .BC
Photography by Rodney Choice www.choicephotography.com
Prudential . . . . . . . . . . . . . . . . . . .7 Wells Fargo Home Mortgage . .IFC
Upcoming AREAA Events AREAA/NAHREP Real Estate and Marketing Conference . . .IBC
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EDITOR ’ S NOTE
are ASIAN
REAL
ESTATE
MARCH/ APRIL 2009 VOLUME 1 — NUMBER 3 Editor-in-Chief Creative Director
Jim J. Park Praveen K. Sharma
Publisher/Editorial Director Jon Ruzan Advertising Sales Manager Scott Hoover Editor Scott Hoover Production Manager/Art Director Debbie Maxwell Financial Controller Kim Gallaher Editorial & Advertising Office Address A|R|E: Asian Real Estate Magazine c/o Banat Communications 23425 N. 39th Dr., #104-193, Glendale, AZ 85310 Tel (623) 516-2723 Fax (623) 516-7738 E-mail: jon@banatcommunications.com A|R|E Office Address (Membership Information) AREAA 5740 Fleet Street, Suite 155 Carlsbad, CA 92008 Tel 760-918-9162 Fax 760-918-6924 E-mail: contact@areaa.org Article Submissions/Press Material To submit any material including articles and press releases, please e-mail: scott@banatcommunications.com or mail to the Editorial Offices using the information above.
The Challenges Ahead Small businesses are an important engine for economic growth and prosperity in our economy and for our real estate industry. Yet, the challenges facing our economy and our real estate market are so unprecedented and deep rooted that it will likely take a historic engagement on part of the federal government to jump start and create lasting traction for the market overall. On the front pages of every newspaper or homepages of every online news outlet, you have seen the stories about record job loss, record foreclosures, companies going out of business and troubles in the stock market. What will it take to turn this situation around, especially for the real estate sector? And will the government function as the necessary
A|R|E is published by the Asian Real Estate Association of America (AREAA) for its members. Information concerning the contents can be obtained by directing correspondence to the Editor. AREAA is national professional trade organization dedicated to creating greater opportunities for homeownership in the Asian Pacific American Community. ©2008 by Asian Real Estate Association of America. Reproduction in whole or part without permission is prohibited. All rights reserved. Opinions expressed by individual authors are not necessarily the opinions held by AREAA.
stimulus to get the market moving again or will it overreach its role and
Article Reprints To order reprints of individual articles, please contact The Reprint Dept. Tel: (717) 481-8500, fax: (717) 481-7677 or e-mail: wholliday@reprintdept.com.
estate decline and help to restore some needed order to the real estate
Asian Real Estate (ISSN#: PP1) is published bi-monthly for $35.70 for the Asian Real Estate Association of America by Banat Communications, 23425 N. 39th Dr., #104-193, Glendale, AZ 85310. Periodical Class Postage Pending Approval at Glendale, AZ and other mailing offices. POSTMASTER: Please send address changes to: Banat Communications 23425 N. 39th Drive, #104-193 Glendale, AZ 85310
curtail innovation and prosperity in the future? Clearly, the overall economic stimulus effort is critical to reigniting market activity and reviving the ailing economy. Additionally, pushing through a package of efforts to stave off foreclosures will slow down the real business. Whatever the solution is, it must fundamentally restore confidence in our housing system, particularly among future homebuyers. If our current real estate crisis continues, we may lose a whole generation of housing consumers who now believe that renting is better than owning, and they will stay on the sideline as the real estate market regains traction. In this issue of ARE, we pose these and other questions to AREAA members and policy leaders. You will hear first-hand the kinds of ideas and
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a r e ASIAN
REAL
ESTATE
Your opportunity to link between U.S. And Asian real estate proposals our members believe will fundamentally change the course of our business. At AREAA, our focus will be to keep as many families in their homes through innovative loss mitigation solutions, including home retention efforts that are sensitive to the cultural and language needs of a more
A|R|E magazine brings together the
diverse homeowner population. Additionally, our community has been hit
broad Asian American marketplace
hard by the tightening of mortgage credit. This is especially critical to the
in the U.S. with Asian overseas
Asian American and immigrant markets where there are high small business ownership and self-employment levels. Our community has traditionally relied heavily on stated products and flexible underwriting to obtain home financing. These products are unlikely to be widely available in the market
real estate interests in a high-end real estate business and lifestyle magazine.
for years to come. So, the question is: How will deserving consumers with demonstrated ability to repay their financial obligation but with nontraditional income patterns get mortgage credit? No doubt, there is not a silver bullet to these problems. But one thing is clear: the housing market will not fundamentally turn around until consumers are able to finance homes. We encourage everyone to get engaged in this debate. The future of our business and the stability of our neighborhoods depend on it.
This unique publication is published by the Asian Real Estate Association of America (AREAA) for both its members and readers interested in this emerging marketplace.
Jim Park Editor-in-Chief A|R|E Magazine A Special Bimonthly Publication from the Asian Real Estate Association of America
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ECONOMIST OUTLOOK
Understanding Today’s Economy BY DR. TUCKER ADAMS PRESIDENT OF THE ADAMS GROUP, INC.
In times
of economic stress, whether it is a bust or a boom, there is a great temptation
to pay attention to the wrong things, to project short-term trends as though they are the new norm. In 30 years of economic analysis and forecasting, I’ve developed some rules that help me step back and look at the economic fundamentals. Now that I am moving toward the end of my career, it is time to share them with the rest of you.
MARCH / APRIL 2009
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ECONOMIST OUTLOOK
1
Rule Number 1: Pigs don’t fly, but the chickens come home to roost. Years ago, I was talking to a busi-
2
Rule Number 2: You can’t forever spend more than you make. Debt is useful and, wisely used,
ness reporter at the USA Today. He proposed a
enhances a government’s ability to alleviate an
rather farfetched outcome to what was occur-
unexpected crisis, a business’ ability to grow, a
ring and asked me what I thought. My
household’s ability to consume. However, at
response was, “Well, pigs might fly.” It doesn’t
some point we must reduce spending, pay
take much imagination to figure out what
down the debt and live within our income.
quote the headline writer pounced on.
In the United States, we’ve been spending
To date, I haven’t seen a flying pig,
beyond our income for decades. Since 1961,
although I got them in every form from cookies
the Federal budget has been in balance only
to battery-operated toys on my birthday.
five times, in 1969 and for four years beginning
Actions have consequences, quite frequently
in 1998 at the end of the longest expansion in
predictable consequences. When we convince
the country’s history. For almost 50 years, we have elected politicians who raise spending and cut taxes, ignoring the long-term consequences,
At some point we must reduce spending, pay down the debt and live within our income.
and return them to office term after term, so we must like their performance. Prior to 1961, the budget was balanced over the business cycle with the exception of times of war. All of the Federal debt came from World Wars I and II, along with wars from the 19th century. The advent of bank credit cards with the
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ourselves that the old laws no longer apply,
ability to revolve your balance at the end of the
that this time the pigs are flying, we are head-
month opened up the world of deficit spend-
ed for trouble. The chickens come home to
ing to consumers and we took to it with an
roost, sometimes accompanied by a black
unbridled enthusiasm. Today, the average
swan or two, and we have to live with the con-
household has 12 credit cards and only about
sequences of the decisions we made on the
37 percent of us pay the entire balance at the
basis of unrealistic expectations. That is pre-
end of the month. The consumer boom this
cisely what happened in financial markets in
created has been the underlying cause of eco-
2008.
nomic growth since 1980-82 recessions.
MARCH / APRIL 2009
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Home to
great technology. And great careers. Join the Prudential Real Estate Network, where great careers are built. And give your business an edge with our national online marketing and advertising support.
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ECONOMIST OUTLOOK
The overuse of financing by businesses led
tive (a stick rather than a carrot) for bankers to
to the dot com bubble of the late 1990s. Now
provide credit to people who can ill afford it.
everyone was in on the scam. Why wait for
So, we’ve bought too many homes, bigger
anything when you can have it now? If there
homes than we need and far more “things”
was one factor that made today’s recession
than we can afford. We did what we were paid
totally predictable, this was it.
to do. Look at what happened in the financial
Rule Number 3:
world. Once the loan and distribute model
Incentives work.
replaced the old loan and hold model, people
People do what you pay them to
making the mortgages were given incentives
do. Most people work for money, a
by the fees they received — the more loans,
few for power, attention, an inner sense of sat-
the more fees. The financial institutions, now
isfaction, or some combination of them. So, be
that the loans were packaged and resold, did-
careful when you set up an incentive system,
n’t have to worry about repayment. Their prof-
because the behavior you reward is likely to be
its came from securitization, so the more loans
the behavior you get. Remember, pigs don’t
the better.
3 fly.
Tranching enabled the construction of What have we done in the United States?
products with various levels of risk suitable for
We give people an interest deduction when
different types of borrowers, allowing even the
they buy a home, which encourages more of
riskiest loans to be securitized. Rating agencies
us to have bigger mortgages and fewer of us
were paid to rate these structured products
to rent, boosting the home ownership rate to
and convinced themselves that these clever
almost 70 percent. We tax the interest on sav-
new packages were safer than the underlying
ing, contributing to the lowest saving rate in
loans.
the world. We tax dividends twice, encouraging business to replace equity with debt.
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Fund managers, motivated by bonuses paid on performance, sought out the tranch-
But, we allow an interest deduction on a
es with higher returns, bidding up the price
second mortgage or equity line, which encour-
and almost eliminating risk premiums. In June
ages us to use the equity in our homes for cars
2007, the risk premium between a CCC cor-
and vacations and the latest plasma TV screen.
porate security and a 10-year Treasury was
The Community Reinvestment Act is an incen-
only four percentage points, down from 23
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ECONOMIST OUTLOOK
percentage points in October 2002. Of course, there was a bit of fraud out there. However, everyone did what he was paid to do and, as long as the system seemed
5
Rule Number 5: Prices are ultimately determined by supply and demand. Where will interest rates be in 2009?
to be working, most people were happy with
Are oil prices going up or down? How low will
it. The pigs were flying!
home prices fall? These are the questions I’m bombarded with when I’m on the speech cir-
4
Rule Number 4:
cuit. The answer is, “I have no idea, and neither
There’s a big difference
does anyone else.” However, I do know that
between investment and
supply and demand will determine the
speculation.
answers.
An investment is a reasoned decision (not always a correct decision, of course) made with the realization that it may not pay off immediately and a plan to work though the problem. Speculation is condoflip.com, where we could all sign onto the Internet in the morning, buy half a dozen condos in south Florida with
An investment is a reasoned decision made with the realization that it may not pay off immediately
almost no money down, and then flip them in a few weeks at great profit and no risk. Everything was handled for us for a small fee.
The interest rate is the price of credit. The
It’s a wonder anyone bothered to go to the
huge supply of debt that will be issued to
office.
finance the $700 billion financial stabilization
By 2005, 28 percent of single-family homes
program along with the other stimulus pack-
were bought by people who didn’t plan to live
ages underway or to be enacted mean $1 to $2
in them, up from the long-term average of 10
trillion of new government securities. That
percent. The extra 18 percent had little or no
increase in supply, all other things being equal,
skin in the game and no plan of what to do if
would cause prices to fall and interest rates to
prices fell and the homes didn’t flip. Pigs were
rise.
flying, so there was no need to worry about those pesky details.
However, in an uncertain world, there is a flight to safety and nothing is safer than the
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ECONOMIST OUTLOOK
obligations of the U.S. government. If that
economic sense for oil to soar to $150 a barrel
defaults, you’d better have all your assets in
and it makes no more sense that it fell by more
something you can eat or that will keep you
than 50 percent. It certainly doesn’t make
warm and dry. So, with both the demand and
sense for gasoline prices to fall by more than
supply curves shifting, the only forecast is one
the price of the underlying raw material. Once
I borrowed long ago from my mentor, Doris
again, both supply and demand curves are
Drury. “Rates will go up, then down, but not
moving — in this case most likely being
necessarily in that order.”
manipulated — but they are still determining
Pricing oil is equally difficult. Over the
price.
longer term, oil prices will rise. There is unlikely to be much increase in supply, while
The four most dangerous words in economic analysis are, “This time it’s different.”
6
Rule Number 6: Home economics don’t always behave rationally. One of the basic premises of eco-
nomic theory is that individuals behave rationally — they take all of the available information, analyze it and then act appropriately. Unfortunately, even when we have good information, we don’t always use it. For example, we know perfectly well that
demand will inevitably rise. The 1.3 billion
we should avoid sweets and exercise every
Chinese use about 1/30 of the energy per capi-
day, yet a huge percentage of us are over-
ta that we do in the United States. As industri-
weight — heart attacks waiting to happen.
alized economies become wealthier, energy
We’re too busy to work out in the morning, we
consumption soars. It boggles the mind to
grab a hamburger and fries for lunch, we snack
imagine the demand for gasoline from a bil-
on whatever goodie has been left next to the
lion more motor scooters or automobiles or air
coffee machine mid-afternoon and we’re too
conditioners in China and India.
tired when we get home at the end of the day
However, in the shorter term oil supplies
for any exercise more strenuous than a beer
can be manipulated to some extent by the “oli-
and a couple of hours of mindless television.
gopolists” who control supply and worldwide
We know what we ought to do, but we don’t
demand will fall as economies move through a
act appropriately on that information.
deep recession in 2009. It didn’t make a lot of
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We are sometimes equally irrational in our
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ECONOMIST OUTLOOK
business decisions. We buy a big car that guz-
supply is limited and demand will continue to
zles gas, turn up the thermostat instead of
increase.” We heard that again as recently as
putting on a sweater and then complain about
last summer. In the 1990s, the mantra was,
energy prices and our dependence on foreign
“There’s a new paradigm. This boom is fueled
oil. We buy a house we can’t afford or make a
by demand for new computer and communi-
mortgage loan to someone with little pro-
cation technology, which can only increase.”
spect of being able to repay it once the loan
In the 2000s it was, “This time it’s different.
amortizes and the rate adjusts to the market.
Computer modeling and technical brilliance
We purchase stock in a company that is wildly
have reached a level where we can eliminate
overpriced or speculate in real estate because
risk by slicing and repackaging it.”
the pigs are flying and we convince ourselves prices can only go up.
Those who work in the real estate finance arena have heard it over and over again.
Not only that, we seldom learn from our
“This time it’s different. Home prices/office
mistakes. Back in the 1980s, when oil prices
prices/retail center prices will continue to go
plunged below $10 a barrel and the Mountain
up. If the borrower gets in trouble, the proper-
West went through a severe recession at the
ty can be sold for more than the balance of the
end of the energy boom, bumper stickers
loan.” That was the assumption underlying the
appeared reading, “Please just give us one
subprime/Alt A mortgage boom. In most
more energy boom and this time we won’t
cases, lenders weren’t dishonest or greedy and
mess it up.” Well, guess what happened in the
borrowers weren’t stupid. We merely suc-
Mountain West as oil surged to $150 a barrel?
cumbed once again to the illusion that this
Yep, we’ve done it again.
time it’s different.
Which brings us to the next rule:
Rule Number 8:
The four most dangerous words in
8
economic analysis are, “This time
ied economic theory, markets functioned in a
it’s different.” When you begin to hear or read
perfect world with an infinite number of buyers
this about the economy or an investment
and sellers, all behaving rationally in response
opportunity, head for cover.
to perfect information. In this world, according
7
Rule Number 7: There is no new paradigm.
Adam Smith was right — the market works (usually). In the ivory tower where we stud-
In the 1980s we were told, “This time it’s
to Adam Smith (The Wealth of Nations, 1776),
different; — oil prices can only go up, since
the invisible hand of competition causes each
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of us, acting in our own self-interest, to arrive
the borrower was making regular payments.
at the optimal price and quantity. If we try to
When the information finally began to leak out,
charge too much, another firm will move in
the market worked just fine. Borrowers default-
and undercut us. If we try to buy too cheaply,
ed, risk premiums soared and prices collapsed.
another consumer will step up and pay a high-
It wasn’t that the market wasn’t working, it was
er price.
that we didn’t like what it told us.
Of course, we know that the real world isn’t a model of perfect competition. However, in many cases, there are large numbers of buyers and sellers with a great deal of information, acting relatively rationally most of the
9
Rule Number 9: Globalization is good — simply an example of specialization and division of labor, which increase productivity and output.
Never make the mistake of believing someone’s forecast (even your own).
This is the Adams corollary to another important finding of Adam Smith. I’ve cited his example of the pin factory in this column in the past — a dozen workers, each concentrating on a single aspect of pin production, can produce many times more pins than a single
12
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time. In the mortgage market of recent years
worker performing all of the different opera-
there were huge numbers of buyers (borrow-
tions. Henry Ford used this concept to devel-
ers) and sellers (mortgage lenders) who con-
op the automobile assembly line, making a
vinced themselves they were behaving ration-
fortune for himself as he made cars affordable
ally.
for the average American family. What went wrong? The problem was the
Having each country specialize in what it
lack of information. No one knew what was in
can produce most efficiently provides cheaper
the packages of securitized loans. No one
goods and services for all of us. The world
knew how much of the home price increase
ends up with more jobs, higher incomes and
was driven by real demand and how much
workers and consumers who are better off. Of
was pure speculation. No one who held a loan
course there is dislocation as industries shift
in a mortgage-backed security knew whether
and/or disappear, and some of the gains from
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trade should be used to retrain those who lose
long ago, “What is the probability that things
their jobs.
will never get any better?” That is one question
As is true during any period of dislocation
I can answer with absolute assurance that I will
and readjustment, we must accept some
be right. The probability is zero. This will be a
short-term pain for longer-term benefits. If
long, difficult recession — it has already lasted
Detroit can’t produce automobiles cost-effec-
more than a year and job losses are accelerat-
tively and efficiently, cars need to be produced
ing. However, it will end and a long period of
elsewhere. There are other industries in which
economic growth will follow.
Detroit can excel and the quicker they turn to
Which brings me to a piece of advice (which
those, the better for all of us. When we resist
I make it a habit never to give): Never make the
this sort of change, it creates problems down
mistake of believing someone’s forecast (even
the road.
your own). That’s where all of those Wall Street credit whizzes went wrong. They fed data into
10
Rule Number 10:
complicated computer models that no one
Bubbles overcorrect on the
really understood, then looked at the equa-
downside.
tions and four-color graphs suitable for fram-
Just as we irrationally believe on
ing that appeared on the screen. Then, they
the way up that the pigs are flying and prices
made the fatal mistake — they believed what
will only rise, so on the downside we convince
they saw.
ourselves it will get worse and worse.
Forecasting is a valuable tool. It takes past
Consequently, for a while it does. Stock prices
history and projects forward what is likely to
fall below the value of the underlying compa-
occur if history repeats itself. But, of course,
nies they represent, home prices plunge below
when history is repeating itself, no one needs
replacement costs, energy costs drop too low
computer models and high-priced economists
to cover production and exploration expenses.
to do this — we are all experts. And, when histo-
All three are occurring as we enter 2009.
ry isn’t repeating itself, the models don’t work.
This sets up the environment for the next
So, use economic forecasters for what they can
cycle of growth and prosperity. For every seller
do well. They can help you understand where
who loses his investment or his home on the
the economy is, how we got here and the forces
way down, there is a buyer who has likely
in motion that will help determine where we go.
picked up a bargain. A reporter asked me not
But remember — it is just a forecast.
MARCH / APRIL 2009
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Dr. Tucker Adams is the president of The Adams Group Inc., an economic consulting firm specializing in regional (particularly the Mountain West) and national economics, as well as Russia and the former Soviet Union. She can be reached at (303) 329-9218 or tuckhadams@aol.com.
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The Crumbling American Dream
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LEGISLATIVE FOCUS
WILL PRESIDENT OBAMA AND THE NEW ADMINISTRATION BE ABLE TO HALT THE CARNAGE? BY SCOTT HOOVER
he American Dream of prosperity and home ownership is collapsing all across the country. In neighborhoods from the boroughs of New York to the cities of California, mortgages continue to balloon and banks continue to move in to foreclose, deflating the stereotype of American prosperity for all homeowners, including Asian Americans. As we have all heard on the news over the past few months, President Barack Obama and his administration continue to work overtime to curb the rate of foreclosures and to stimulate an economy in its worst condition since the Great Depression. What does all this mean for Asian American and minority homeowners who have been hit as hard, if not harder than most Americans by the latest housing crisis? A/R/E spoke with representatives from Housing and Urban Development (HUD) and U.S. Representative Michael Honda (CA-15) to see how President Obama and the new administration plan to work with minority homeowners to halt the growing housing crisis.
T
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LEGISLATIVE FOCUS
Keeping Minorities in Their Homes
American Housing Rescue and Foreclosure
For many years, research has indicated that
Prevention Act, H.R.3221,” he says. “I supported
Asian Americans have not been affected by
this comprehensive legislation that expanded
mortgage downturns and most recently, the
the Federal Housing Administration’s mort-
mortgage crisis; however, with the problem as
gage insurance program. This allows families, in
widespread as this economic downturn has
danger of losing their homes, to refinance into
become, the research has been wrong.
more manageable lower-cost government-
U.S. Representative Michael Honda is the
insured mortgages. The bill provides $180 mil-
chair of the Congressional Asian Pacific
lion for pre-foreclosure counseling and $30 mil-
American Caucus (CAPAC). He says he is very
lion in grants for legal assistance to help families in foreclosure.
“The numbers show the reality of what’s going on.” Sean Moss Regional Director, HUD
“I look forward to working with the Asian Real Estate Association of America and similar organizations in our community to ensure adequate outreach to Asian American, Pacific Islander, and other underserved communities who may benefit from this funding,” Honda
concerned that the American mortgage crisis
adds. “On behalf of CAPAC, I will continue to
has disproportionately impacted minority com-
work to ensure that these minority communi-
munities, particularly low-income Asian Ameri-
ties receive appropriate attention in federal
can and Pacific Islander neighborhoods that are
policy debates.”
often isolated linguistically and culturally.
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Recently, new facts have started to come to
When asked what types of programs are
light about how the housing crisis and eco-
available right now for minorities that might
nomic downturn is affecting Asian American
help keep them in their homes and what new
homeowners.
programs might be offered to these minority
Lisa Hasegawa, executive director of the
families to help them in the future, Honda said
National Coalition for Asian Pacific American
there are a number programs that are address-
Community Development, said her national
ing these needs.
organization conducted a recent study with
“Last July, the House of Representatives
numbers from the Federal Reserve that cross-
passed and President Bush signed into law, the
referenced ZIP codes with high foreclosure
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LEGISLATIVE FOCUS
rates and large Asian-American populations.
mitment to ensure that all Americans have a
“In New York state, those ZIP codes with the
chance at the American dream of homeowner-
highest foreclosure and the highest Asian pop-
ship,” says Representative Honda. “As a member
ulation was [in] Jackson Heights,” she said.
of the House Appropriations Committee, I will
“Nationwide, the foreclosure rates were much
continue to support programs that create
higher than expected.”
opportunities for low-income and first-time
“I think it really shines some light on the myth that all South Asians are prosperous,” said Sean
homebuyers and spur revitalization in low- and moderate-income communities.
Moss, regional director of the federal Housing
“Through my role as CAPAC chair, I will
and Urban Development Department. “The num-
work closely with the Obama administration to
bers show the reality of what’s going on.”
hold predatory lenders accountable for irre-
Keith Getter, a management consultant
sponsible lending policies,” he adds. “Simul-
with the housing-counseling training nonprof-
taneously, I’ll work to ensure public access to
it NeighborWorks America, said that in commu-
the information needed to make wise financial
nities of color, the road to foreclosure is often
decisions. This includes funding for financial
paved with good intentions on both sides.
literacy, financial counseling, and foreclosure
During his campaign, President Obama
prevention programs, particularly for low-
talked about how minorities many times were
income, minority, and new American commu-
taken advantage of within the home-buying
nities, as well as first-time homebuyers.”
process.
Due to the fact that California is one of the
“[Often] the person who was trusted ended
hardest hit areas of the country with foreclo-
up not being mindful of what the buyer could
sures, Representative Honda has had a first-
afford down the road,” said Getter. “It was your
hand view of the problem in his own home
neighbor, who looks like you, who was the
state. He says there are a number of ideas that
mortgage broker.”
he is using in California that may be used in the
Representative Honda plans to work with
L to R: Allen M. Okamoto; California Assembly member, Ted Lieu (53rd District); Mike Honda; Jim Park.
bigger, U.S. problem.
President Obama and his administration to place to make sure all homebuyers are on a
Honda lists these initiatives: Increasing FHA Loan Limits
level playing field.
“Even as foreclosures hit record levels,
address these issues and to put safeguards in
“I applaud President Obama for his com-
Californians face some of the highest home
MARCH / APRIL 2009
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LEGISLATIVE FOCUS
“With the current state of our economy, timely investments in America’s economic growth and stability are crucial.” Michael Honda U.S. Representative
prices in the country,” he says. “Given this reali-
wise be able to buy a home,” Representative
ty, any expansion of affordable mortgage loan
Honda says. “These programs help people put
opportunities is especially important for Cali-
down roots, spend more time in family activi-
fornians. The American Housing Rescue and
ties, and be more involved in their children’s
Foreclosure Prevention Act, a bill, which I sup-
lives, their schools, churches, and civic activities.
ported and which was signed into law last
On a federal level, I will continue to support ini-
year, temporarily increased Federal Housing
tiatives that help families transition from rent-
Administration loan limits. I also voted for the
ing to homeownership.”
second stimulus package, passed last month in tinue to advocate for a permanent increase in
Foreclosure Prevention in California’s 15th District
FHA loan limits to assist American homeowners
“About 250,000 California properties were in
in California and throughout our country.”
foreclosure in 2008. In Santa Clara County
the House, which extends this increase. I will con-
alone, there were 6,268 foreclosures last year,
Assisting First-Time Homebuyers
up 270 percent from 2007,” he says. “To mitigate
“In my role as Appropriator, I worked with my
these trends in my district, I hosted a workshop
colleagues to advocate for federal dollars to
on foreclosure prevention in which public and
organizations such as the Housing Trust of
non-profit agencies provided one-on-one
Santa Clara County. The Trust created the First-
counseling to local homeowners. At the work-
Time Homebuyer Assistance Program to give
shop in San Jose, counselors from agencies such
workers better opportunities to buy their first
as the U.S. Department for Housing and Urban
home,” he says, “The Trust provides gap financ-
Development (HUD) gave residents an overview
ing to developers of affordable multi-family
of the many programs available free of charge to
rental units, emergency shelters, transitional
distressed homeowners. In Congress, I will con-
housing, and housing for special needs popula-
tinue to support funding for foreclosure preven-
tions.
tion programs directed toward underserved and
“Programs such as these are essential for first-time homebuyers who would not other-
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MARCH / APRIL 2009
minority homeowners.” The $789 billion stimulus package recently
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LEGISLATIVE FOCUS
signed into law by President Obama also has
“Finally, I support strengthening the Low
aspects that will help keep minorities in their
Income Housing Tax Credit (LIHTC) program in
homes.
the economic stimulus legislation,” Represent-
“With the current state of our economy,
ative Honda adds. “This program has a twenty
timely investments in America’s economic
year history of successfully fostering public-
growth and stability are crucial. For this reason,
private partnerships and attracting private
I voted in support of the American Recovery
investment to support the development of
and Reinvestment Act of 2009. This economic
over two million units of affordable rental
stimulus legislation includes funding that
housing. The economic crisis and disruption of
would help to stabilize low- to moderate-
capital markets now threatens to undermine
income communities, including minority com-
the viability of this program and halt hundreds
munities, through a variety of measures,” says
of pending affordable housing developments
Representative Honda.
that would benefit disadvantaged communi-
The bill includes $4.2 billion for the
ties from New York to Honolulu. Without con-
Neighborhood Stabilization Program for activi-
gressional action these projects will be lost
ties related to the redevelopment of vacant,
precisely at the moment when communities
foreclosed properties in order to create more
desperately need the developments, both for
affordable housing and stabilize home values.
jobs and affordable housing.”
There is also $1.5 billion for the HOME
Honda, like President Obama and many
Investment Partnerships Program, which pro-
other Senators and Representatives are contin-
vides grants to state and local governments
uing to be strong supporters of these impor-
who partner with nonprofit groups to increase
tant programs. This funding supports the work
homeownership and affordable rental housing
of government agencies, public-private part-
for low-income households. Finally, the stimu-
nerships, and community-based organizations
lus legislation includes $1 billion for the
with expertise in reaching Asian American and
Community Development Block Grant Program
Pacific Islander households, and ultimately
(CDBG) to benefit low- and moderate-income
helping them to boost homeownership rates in
households, and revitalize neighborhoods.
our communities and across the nation.
MARCH / APRIL 2009
are
MIKE HONDA has represented the 15th Congressional District of California in the U.S. House of Representatives since 2001. He is serving his second term as Chair of the Congressional Asian Pacific American Caucus.
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FORECLOSURE PREVENTION
S TOPPING F ORECLOSURES resident Obama and his administration
gible modification they make. And they’ll get
P
affordable monthly payments,” Obama said.
by helping up to 9 million homeowners rework
Refinancing help. Homeowners who took out
In addition, homeowners who remain in
their mortgages to avoid foreclosure on
loans owned or guaranteed by Fannie Mae or
their properties and stay current will get a
February 18.
announced a $75 billion plan aimed at shoring up the flagging housing market
another $1,000 a year for three years as long as
The plan involves:
the homeowner remains current on payments.
Freddie Mac will be able to refinance through
monthly balance reduction to reduce their loan
“In the end, all of us are paying a price for
those institutions — a plan designed to help
principal. That will amount to up to $1,000 a
this home mortgage crisis. And all of us will
millions of homeowners who can’t refinance
year for five years.
pay an even steeper price if we allow this crisis
because they owe more on their homes than
to continue to deepen — a crisis which is
they are worth.
Money to avoid defaults. The plan includes an
unraveling homeownership, the middle class,
Currently, homeowners who owe more
incentive of $500 to lenders and $1,500 to
and the American Dream itself,” President
than 80 percent of the value of their homes
homeowners if loans are modified before mort-
Obama said at his formal unveiling of the plan
have a tough time refinancing; nearly one in
gage holders fall behind.
in Mesa, AZ.
seven homeowners is “underwater” on their
The plan includes refinancing mortgages of
loan, about 12 million homeowners, nearly
“This will be successful enough (to help sta-
up to 5 million homeowners to make their pay-
double the 6.6 million who were underwater
bilize) the market,” says economist Mark Zandi
ments more affordable. It also involves an ini-
at the end of 2007, according to Moody’s
of Moody’s Economy.com. “It’s going to cost tax
tiative to reach up to another 4 million home-
Economy.com.
payers money, but it’s a nice mix of policy steps
owners by lowering the risk of imminent
that will have a mitigating impact on foreclo-
default with a “homeowner stability initiative”
Housing stability. The plan earmarks $75 bil-
sures. It won’t stem them, but it will mitigate
to reduce their monthly payments.
lion to help homeowners stay in their proper-
the increase.”
“The plan I’m announcing focuses on rescu-
ties. To reduce monthly payments, lenders
ing families who have played by the rules and
would be responsible for lowering interest
acted responsibly: by refinancing loans for mil-
rates so the borrower’s monthly payment is no
“By making these investments in foreclo-
lions of families in traditional mortgages who
more than 38 percent of income. After that, the
sure-prevention today, we will save ourselves
are underwater or close to it; by modifying
government would help lower payments by
the costs of foreclosure tomorrow – costs borne
loans for families stuck in sub-prime mortgages
matching further interest-rate reduction pay-
not just by families with troubled loans, but by
they can’t afford as a result of skyrocketing
ments to bring the ratio down to 31 percent.
their neighbors and communities and by our
interest rates or personal misfortune; and by
Zandi says the total cost of the plan could run up to $100 billion.
economy as a whole,” Obama said. “Given the
taking broader steps to keep mortgage rates
Incentives. As an incentive, companies that
magnitude of these costs, it is a price well
low so that families can secure loans with
service home loans will get $1,000 for each eli-
worth paying.”
MARCH / APRIL 2009
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Fixing The Problem AREAA members offer their advice regarding the housing crisis facing the U.S.
It appears the government is ready and willing to do whatever it takes to fix the housing crisis, but there is still one question — will it work?
s part of the new stimulus package, the
A
government has included homebuyer tax credits, and not just for first-time
BY SCOTT HOOVER
homebuyers, but for all homebuyers purchasing a primary residence. In addition, the government is attempting to drive mortgage rates down and working particularly hard to modify troubled loans to keep homeowners out of foreclosure. With these new measures in place the housing market will surely recover… right? The answer to that question depends on your definition of recovery. Will it be enough to stop prices from falling, and possibly even help them start going up again? It’s definitely possible. What other ideas are out there to cure what ails the U.S. housing market? AREAA members joined in with their ideas on how to stimulate the U.S. housing market and prevent foreclosure and reestablish the American Dream of homeownership in the Asian community.
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SOUNDING BOARD
“Real estate values will
“Put a temporary freeze on the property tax.
“Lenders need to respond to
rebound, it is a matter of
‘Special’ assessments have become the norm for
short sales in a timely man-
when, not if. We need to
most properties. Even reverting and limiting the
ner. Lenders respond to REO
allow qualified, distressed
property tax to 1 percent on the purchase price
in a matter of days to
homeowners to refinance
would alleviate the cost of new ownership, may
approve/deny offers. Many
the amounts they can
attract more qualified buyers, and the short-term
of the short sales we have in
afford and repay the
loss of revenue would more than be made up in
escrow have been there for
remaining principal they
more sales.”
cannot when they sell or values rebound. The first
more than three months. - Lucy, La Crescenta, CA
lien refinanced as a conforming FHA/Conven-
The buyers give up and lose the interest to buy. I feel that by having short sales moving faster, it
tional loan and a second lien at the present Fed
“We, as AREAA members must do anything and
would be a huge boost to the economy from a
rate of 0 to 1% for the remaining balance, to be
everything to educate ourselves so that we can
Real Estate standpoint.”
paid at time of sale or reviewed at five-year inter-
serve our community as confident consultants,
vals.”
not as sales people.”
- Gina Duncan, Maui, HI
- Joseph Ho, Bellevue, WA
- Yangsook Ku, Atlanta, GA
“The lenders should take back the homes and try
“Congress should enact a
fy loans to those taxpayers by making mortgage
to sell them, but keep the previous owner in the
one-time taxpayer bailout,
rates fixed to current market rates and reducing
home as a tenant, paying market rent on one year
giving people who file a feder-
the principal balance by 50 percent of the differ-
leases. When a home sells the new owner must
al income tax return $1 mil-
ence between balance due on loan and current
honor the existing lease. This would at least keep
lion. With this money people
market value of the property.”
people from being thrown into the street and give
will pay off debts, invest in
them time to find a long-term place to live, either
Wall Street and have more
by renting, or by buying a much less expensive
money for education. With almost everyone
“Press releases with a positive spin. As the local
home.”
becoming an instant millionaire it will be up to
newspapers and television stations reported
“With the money lenders received in the bailout from taxpayers, they should be required to modi-
- Carmen, Los Angeles, CA
“Additionally, the government should stop
the people to figure out how to maintain their
defaults; etc; that really scared the public. Many
distorting the market and let it run its course. The
lifestyle reasonably. Companies will figure out
Americans follow the media as the true source —
long-term solution is to keep it from happening
how to get their hands on this money and this will
so that should be the priority.”
again by passing a Constitutional Amendment
keep them solvent. The key to this plan is to not
that prohibits all levels of government from dis-
think about it too long, just do it.”
torting markets of any kind. True free markets are
- Annette DiResta, Hillsborough, CA
- Ira Bland, La Crescenta, CA
self-correcting. The government should only be charged with making sure there is no fraud, theft, corruption, and/or other blatantly illegal acts.” - Mark Cohen, Gainesville, FL
MARCH / APRIL 2009
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SOUNDING BOARD
Tightened mortgage lending standards are offsetting the Fed’s trillions in spending BY BRIAN CHUNG
t’s my opinion that the financial crisis erupt-
going to tighten lending standards, they
ed in the second half of 2007 when sub-
should have done it at a pace that would allow
prime borrowers started to default on their
middle class Americans to adapt. This overre-
home mortgages. It is interesting to note that we
action by lenders is similar to a hypothetical
all agree on what started the crisis, but no one,
situation like the U.S. Homeland Security
including the Federal government, knows what
deporting all of the illegal immigrants in the
will end or even mitigate the crisis. The Fed has
U.S. in a very short period of time. If all of the
spent hundreds of billions of dollars, mostly bail-
illegal immigrants were to disappear over-
ing out the financial institutions, but the econo-
night, the U.S. market would collapse. The col-
my is yet to show any signs of recovery. It seems
lapse of the U.S. economy could be prevented
that they have forgotten common sense, and
if the changes were made more slowly.
I BRIAN CHUNG
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have even committed to spend trillions more
No lenders are in a position during the eco-
dollars to contain the financial crisis. Aggressive
nomic crisis to loosen lending standards. It
spending alone by the Fed will not prevent the
would not make sense to wish these lenders to
economy from going into a deep recession.
start lending aggresively when they have their
The Fed and policymakers must under-
own problems with losses in their back yard.
stand that mortgage lending standards swung
The Fed should take a leadership role, rather
from the too loose sub-prime standard to the
than passively relying on these lenders, and
historic high credit crunch in a very short peri-
offer more realistic qualifying standards that
od of time. It does not take a rocket scientist to
reflect today’s financial realities. Lenders have
notice that lending standards have tightened
headed the other direction to the extreme that
too fast and too furiously to allow the market
it practically makes it impossible for middle
to adapt. For instance, in the first half of 2007,
class Americans to get home mortgage loans.
home buyers could borrow up to $1 million
While the Fed is pouring out hundreds of bil-
without verification of income and assets, and
lions of dollars to save the banks and Wall Street
possibly without any down payment. By the
from mortgage defaults, it makes sense to pour
second half of 2008, home buyers could not
some of the portion into helping middle class
secure a mortgage from many banks if
Americans qualify for home mortgage loans.
income-to-debt ratio is not 45% or less, no
There are many would-be home buyers that
matter how much they put down. If they were
cannot get home mortgage loans today.
MARCH / APRIL 2009
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FORECLOSURE PREVENTION
BRIDGES TO HOMEOWNERSHIP (B2H) BY KIMBERLY PARK , AREAA-LA EDUCATION CHAIR
ments. They don’t see a hope of recouping any
I. Short-Sale Program
he members of AREAA Greater Los Angeles, a multicultural coalition of real estate practitioners, present these foreclosure prevention measures. This paper is the result of on-going research and dialogue with our clients, colleagues in real estate sales, lenders, and other practitioners of the real estate business in general.
I. Short Sale program – This is a remedy for
sures look better on banks’ balance sheets as
distressed property that must be sold, either
they can book them at full face value. Short sale
T
benefit from future appreciation and they
There is nothing short about our current Short-
know credit can be repaired over time.
Sale process. The typical delay is 3-8 months
Any loss mitigation effort should be done
from offer to closing. Many buyers walk away
in the language of the borrowers. Many in
by the time the lender comes back with an
minority communities are unwilling to call a toll
answer. Buyers are unwilling to pay the original
free service. It’s too impersonal and intimidat-
price after a long wait or simply get cold feet.
ing. Proactive action with attention to chang-
This is a real tragedy.
ing borrower behavior is the key to saving
Short-Sale is an effective tool that saves
homes and averting crises small and large. We
money for the banks and the government. If
need tools that will remedy the problems of
short-sale fails, then the property becomes
yesterday, but also prevent additional foreclo-
bank-owned, costing the bank an additional 20
sure on a large scale. We propose to accomplish
percent to 40 percent loss eventually.
both in our plan, B2H:
However, the banks seem unable or unwilling to expedite this process. Perhaps foreclo-
With the experts predicting a second wave
because it does not qualify for loan modifi-
reduces their asset base and the loss must be
of foreclosures hitting the market in 2009 from
cation or the owner no longer wishes to
recognized immediately. Short-term account-
Alt-A papers and a third wave involving prime
keep it.
ing may be the culprit.
to find a solution to this rising inventory and
II. Deed in Lieu of Foreclosure with a new
Here are recommendations from
declining real estate value is urgent. More
twist – This will be for owner-occupied proper-
the Realtors in the trenches:
prime borrowers are contemplating default
ties where the homeowner wishes to stay in the
1. Create a national clearing house to do short
even though they can make the monthly pay-
property.
borrowers starting in 2010 and 2011, the need
MARCH / APRIL 2009
sales quickly using universal guidelines.
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FORECLOSURE PREVENTION
2. All banks using TARP money must follow these guidelines.
people who may be gaming the system. Trying to determine who deserves help truly is a timeconsuming, monumental task that most loss
3. We can use a national multicultural network
mitigation departments of the banks are ill-
of realtors trained to do short sales to serve
equipped to deal with. Many borrowers, espe-
borrowers in their own language. In the
cially in minority communities, are not aware of
absence of effective buyer counseling and
the resources available for delinquent home-
reasonable expectations, fear sets in and
owners.
buyers flee. B2H Deed in Lieu of Foreclosure 4. Stop the foreclosure clock once a Short-Sale package with an offer has been submitted.
will work this way: 1. Government buys the property from banks at a “short-sale” price, current market
5. Some negotiators behave like thugs with all
value.
the power and leverage on their side. Inefficient, abusive or ignorant (often all
2. Homeowner signs the deed over to the
three) negotiators cost taxpayers (and their
government entity, say B2H. The original
own employers) big money.
lender and B2H agree not to report negative comments to the credit reporting agencies.
II. Deed in Lieu of Foreclosure with a New Twist
3. Homeowner pays market rent plus some
HOPE–NOW reports that the re-default rates on
administration fee (say 10 percent) and
loan modifications after 6 months are as high as
retains an option to repurchase in 5 years or
50 percent.
less at the pre-determined price.
Loan modifications are too slow to help a large number of homeowners facing defaults. Fear, confusion and misinformation are
4. The owner, B2H, will pay the property tax, HOA fees, if any, and collect the rent.
abound in the market. Very few borrowers get real relief the first time they call the bank. As a
5. The government receives revenue from the
result, many simply let their property get fore-
cash flow generated from the 5-year income
closed.
stream, plus the full repayment of the
Some banks are unwilling to help borrow-
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principal at the end of 5 years. This is a
ers who are not delinquent, creating a real
sensible way to recoup some of the bail-
catch-22. Banks fear they might be helping
out money for the taxpayers.
MARCH / APRIL 2009
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FORECLOSURE PREVENTION
6. Land contract sale can prevent homes from
6. If homeowner/renter is irresponsible during
being used as ATMs as B2H is the legal
the 5-year period, a simple eviction will get
owner.
them out. It’s not a foreclosure process. It can be rented or sold now.
7. The only criteria for qualifying for the home owner is that they are able to pay the
Perhaps the loss, as well as the eventual
market rent. They do not have to be in
profit can be shared by all parties in the deal to
default to participate. This is “no-fault”
make this attractive to the investors holding
divorce.
the notes. Also, loans with junior liens might need a special provision to qualify under this
Benefits of B2H: 1. This prevents defaults, not encourages, in a simple, fast, large-scale manner.
program. We hope our ideas prove to be useful and invite further discussions and collaborations in our common search for solutions to the crisis
2. Families can stay in the house, in the same
facing our country.
are
neighborhood and school district. The social benefit of stabilizing the families in distress is enormous. 3. There is no bailout of “unworthy” borrowers. In essence, the borrowers are losing the house. This will satisfy even the most conservative among us who want to see irresponsible borrowers lose their house as a moral lesson. 4. The homes will be kept away from the vultures (flippers, speculators, etc.) KIMBERLY PARK serves as 5. The program will keep these homes in the
Education Chair and a
care of the homeowners who bought the
Director on the board of
house they love. They will continue the
AREAA Greater Los
upkeep as they can soon reclaim it.
Angeles.
MARCH / APRIL 2009
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CREDIT REPAIR
Credit Repair Do it yourself or hire a credit restoration company? BY BRIAN C. ABER
W
hen looking to challenge derogato-
mention is by using this method they are not
ry items with requirements outlined
required to comply with specific areas of the
in the Fair Credit Reporting Act, a
law that protect consumers, such as forwarding
consumer typically has two options: Do it
your dispute to the creditor or supplying your
themselves or hire a professional credit repair
client with the process of verification. These
agency. Which is better? What should you tell
methods typically cause “soft deletes” and the
your clients? It depends on the situation.
item reappears after a couple of months.
There are many factors that one has to take
This is typical of their defense strategy of
into mind when planning the credit repair
“Attrition and Delay.” With entities that make
process. It’s bad enough with the level of crite-
more money when consumers have derogatory
ria involved within the Fair Credit Reporting Act
items and good credit data being considered
to handle a proper dispute without having to
“unsellable,” how can you assure your clients are
deal with the mis-truths and anti-credit repair
being dealt a fair hand?
propaganda produced by the credit bureaus and their affiliates.
Take the statement “you can do it yourself” and apply it to businesses that aren’t involved in credit repair. How many other valuable serv-
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What To Do?
ices can be done by the client themselves?
The credit bureaus will promote the online dis-
While many of us can do our own taxes, mow
putes system as a reputable way to clean up
our lawn and even represent ourselves in court,
your credit report; however what they fail to
we hire professional accountants, landscapers
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CREDIT REPAIR
and attorneys for matter of lack of expertise
statistic to let your clients know about is the
and convenience.
agency’s fix/deletion ratio, which is the total
Consumers can do it themselves or you
number of deleted items divided by the total
can try to help your clients yourself. If you
number of derogatory accounts. Also, tell
are prepared and committed to the entire
them to find out what that fix/deletion ratio is
process then it is recommended to visit
for the first round of correspondence.
BrokenCredit.com, research the Fair Credit Reporting Act, and stick to a plan.
Is the agency posting recent results on their Web sites or are they outdated? If results
Please make note that loan originators
are several years old, take that into considera-
should still be careful with what advice they
tion. Does the company charge per deleted
hand out and its level of accuracy. While you
item? This can get very expensive for con-
may not be a credit repair company, you can
sumers of agencies that are very successful at
still be held liable under the Credit Repair
what they do. Does the company charge their
Organizations Act if you are financially tied to your client. Make sure correspondence to the bureaus are effective and provide a clear and
The No. 1 qualification to use when researching
legible proof of address and social with your disputes.
credit repair companies is results.
If your clients are considering utilizing the services of a professional credit restoration company, then you need to tell them to do
fees upfront? Charging upfront for credit
their homework; just not as much. Let them
repair is illegal unless they are exempt from the
know the No. 1 qualification they want to use
Credit Repair Organizations Act. Don’t let the
when researching credit repair companies is
membership fee fool you; it’s still an upfront
results. These companies can have all the bells
charge no matter what way you look at it.
and whistles, preach about how many attor-
While I will only vouch for the company I
neys they have working for you or that they
work for, there are plenty of ethical and expe-
have “Attorney Facilitated” services, or even be
rienced companies out there. For example,
a little less expensive then the next guy. None
members of the National Association of Credit
of this matters unless they are producing
Services Organizations (NACSO), www.nacso.org,
results and achieving higher credit scores.
go through a very strict and rigorous applica-
You might have seen some agencies claim
tion process. Ethical and experienced compa-
they have removed 11,237 late payments. That
nies have been here to help your clients and
BRIAN C. ABER is a Senior Account
sounds impressive until you find out they’ve
will continue to be here for many years to
Executive with HTDI Financial and sits
only serviced 12,000 clients. A more important
come.
MARCH / APRIL 2009
are
on the Board of Advisors for NACSO.
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POLICY GOALS
AREAA 2009 P OLICY GOALS BACKGROUND
Increase post-purchase counseling in Asian
The Asian American population made tremen-
languages by HUD counselors and loan ser-
dous gains in homeownership in the early part
vicers
of the decade, increasing the national homeownership rate from 53% to 59% between
Allocate federal funds (as determined by
2000- 2005. These recent first time homeown-
HUD) and create CRA benchmarks (to be set
ers face significant challenges in the current
by the appropriate regulatory body), to
real estate environment, such as a lack of built-
ensure that banks and financial institutions
up equity and certain cultural characteristics
provide effective loss mitigation services and
that prevent qualification for financing. To pro-
outreach into the Asian, and other under-
tect homeownership in Asian American com-
served communities
munities, the housing industry and related legislation need to focus on two key issues:
Reform the loan servicing industry to create
loss mitigation and increased access to credit.
more consistent workout options and efficient short sale procedures, to help more home-
LOSS MITIGATION
owners avoid foreclosure
Approximately 60 percent of the Asian popula-
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tion in the U.S. is foreign born, creating signifi-
INCREASED ACCESS TO CREDIT
cant linguistic barriers in communication with
Well-qualified Asian Americans are unable to
mortgage servicers. During the property
obtain financing due to increasingly tight
acquisition and financing process, a homebuy-
mortgage standards and a lack of credit histo-
er has access to in-language services from real
ry, caused by a cultural tendency to avoid use
estate agents and mortgage professionals in
of traditional credit. In addition, the Asian
their community. However, post-purchase,
American community tends to have the high-
Asian homeowners have limited options in
est small business ownership rate as well as
their native languages to discuss alternatives
self employment. This employment pattern
to foreclosure in times of financial distress.
tends to suppress the purchasing power of the
To effectively protect homeownership in
potential homebuyers. Additionally, Asian
the Asian American community, lawmakers
Americans have not historically been signifi-
and loan servicers should pursue the follow-
cant users of FHA insured loans, due to loan
ing:
limits and income documentation require-
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POLICY GOALS
2009 AREAA EXECUTIVE BOARD ments, thus creating unfamiliarity with the most prominent mortgage option available today. To ensure Asian Americans have access to credit, lawmakers and banks should pursue the following: Increase mortgage qualification flexibility to qualify more applicants if they meet monthly and down payment requirements with a long term interest in the home
Allen Chiang Chair
John Fukuda Chair-Elect
Emily Moerdomo Fu Immediate Past Chair
John Y. Wong Founding Chair
Allen M. Okamoto Founding Chair
Jim Park President & CEO
Create mortgage solutions for small business owners who have relied heavily on stated income products in the past, including a more flexible FHA product for small business owners and self employed borrowers Increase education and outreach in Asian communities to promote awareness about FHA products and the benefits they provide Make federal loan limit increases permanent to reestablish federally insured loans as a viable option in high cost markets where Asian Americans typically live Implement alternative credit rating tools to provide opportunities for mortgage financing among Asian and immigrant borrowers with little or no traditional credit
are
Kathy Tsao Secretary
MARCH / APRIL 2009
Rob Mehta Treasurer
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HOT TRENDS
CONDO-HOTELS BOOMING WITH POTENTIAL Hot Trend in Vacation Homes Appeals to Baby Boomers BY LARRY COHEN
T
here has never been a more challeng-
in buying power, baby boomers (ages 44-62 in
ing time to be a mortgage broker, with
2008) are blooming, according to consumer
dwindling home sales and tightening
expert Iconoculture.com.
lending standards making deals harder and
“At the upper end, they’re empty-nesting,
harder to come by. Today’s mortgage profes-
grand-parenting and reinventing retirement.
sional has two choices: give up and get out, or
They’ll scrimp and splurge to share the good
adopt the attitude of political patriarch Joseph
life with loved ones.” Favorite indulgences
P. Kennedy who said, “When the going gets
include travel and “a well-feathered nest for
tough, the tough get going.”
entertaining.”
Real estate agents interested in exploring
This description supports the 2008 Leisure
outside-the-box opportunities to enhance
Market Research Handbook that reports the
their pipelines should consider reaching out to
$2.4 trillion leisure market is being fueled pre-
the estimated four million baby boomers that
dominantly by baby boomer spending, with
will turn 50 this year.
significant marketplace growth expected for the foreseeable future.” Additionally, National
The Buying Power of Boomers
Mortgage Broker reported in January that
The Baby Boom generation, born between
baby boomers are more willing to take on new
1946 and 1964, represents 28 percent of the
mortgage debt to purchase vacation proper-
U.S. population. With an estimated $2 trillion
ties to enjoy.
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HOT TRENDS
Clearly, this is a demographic ripe with potential for vacation second-home mortgage lending.
and the rental management company. Typically, condo-hotels are upscale, fullservice developments in strong hotel markets — either popular vacation destinations or
Not Your Parents Time Shares
large cities frequented for business and leisure,
Fractional vacation homes are so last decade,
according to the hotel industry research firm
with their maintenance burdens and availabil-
Lodging Econometrics. The nation’s top mar-
ity limited to only a few weeks a year.
kets for condo-hotels are Las Vegas (represent-
Conversely, Business Week calls condo-hotels
ing 30 percent of the market), followed by
“the latest trend to hit the hospitality industry.”
Miami/Fort Lauderdale, Fla., Orlando, Fla., New York City and Chicago.
Historically, condo-hotel second homebuyers
One of the largest condo-hotel projects in the United States is Lake Buena Vista Resort
have good credit scores, assets and cash to
Village & Spa in Orlando, Fla. Located at the
spend on their vacation home.
destinations in the world, it features all of the
epicenter of one of the most popular tourist amenities of a premier resort including fine and casual dining, a signature health spa and
The concept has exploded in recent years and
designer shopping at the adjacent Factory
dominates the industry because of its tangible
Outlet Center.
advantages,” according to the National Association of Condo Hotel Owners.
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Unit owners have the option of placing their condo in the resort’s rental program and
Simply put, a condo-hotel is the fee-simple
receiving two-thirds of the rental income. The
purchase of a deeded condominium unit.
resort management company provides securi-
Owners have unlimited use, and when they’re
ty, reservations, check-in/out services, house-
not using their condo-hotel units, they can
keeping and maintenance, manages financial
make them available to hotel guests through a
duties on behalf of unit owners such as rent
rental management or leaseback program.
collection, bill payment and owner distribu-
Any revenue generated through the rental
tions, and promotes the resort on a national
program is shared between the unit owner
and international basis.
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HOT TRENDS
Closing the Deal Flourishing condo-hotel properties such as Lake Buena Vista Resort Village & Spa have more interested buyers than they have mortgage brokers to service them. Unfortunately, the ongoing turmoil in the mortgage industry has made wholesale residential loans hard to come by. For real estate agents looking to keep their pipelines primed with the baby boomers who are buying condo-hotel vacation properties, the next challenge is finding mortgages to finance these purchases. Unfortunately, until the residential real estate market starts to recover, the only way to do this is persistence. Get on the phone and contact every lender you can — locally, regionally and across the country — and ask them if they finance condo-hotel purchases. Don’t be surprised if you come across lenders who are unfamiliar with the condohotel real estate sector. Be prepared to educate them. Some lenders will need to bring it up to their loan committees for discussion and others will require condo-hotel buyers to complete qualifying questionnaires.
Consider working with the condo-hotel management companies to present the concept to skeptical lenders. Historically, condohotel second homebuyers have good credit scores, assets and cash to spend on their vacation home. Most would easily qualify for a standard second home loan. In addition, when the condo-hotel is located in a popular vacation destination, owners who put their units in the rental program can get substantial income on a monthly basis. Another option for condo-hotel mortgages is private lenders. Real estate agents who have the contacts should reach out to this arena as well. Condo-hotels are an appealing vacation home option for today’s baby boomer generation. Agents who can successfully tap this audience will be the envy of their peers. Larry Cohen is senior vice president of Lake Buena Vista Resort Village & Spa in Orlando, Fla., one of the largest condohotel projects in the United States with 1,875 individually-owned condo-hotel units at build out and 400,000 square feet of retail space. a r e
MARCH / APRIL 2009
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101 Networking KNOWING WHAT NOT TO DO Networking can play a pivotal role in the success of real estate agents in today’s volatile housing climate. Equally as important as knowing what to do in networking is knowing what not to do. In particular, there are three networking “don’ts” that all real estate agents should be cautious of, as they can thwart your efforts to build successful partnerships.
BY ED CRAIN AND DR. IVAN MISNER
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NETWORKING
Procrastination
also made the CPA look bad in front of their
Nothing can ruin a potentially lucrative referral
client.
partnership faster than failing to reply to a net-
What if they were raving about you to their
working partner in a timely fashion. Unfortu-
client, and then you took several days to return
nately this happens all too often. When we
the call? Now your networking partner is forced
receive a call or an e-mail from a networking
to backtrack, and tell their client to find another
partner, returning that message should immedi-
agent.
ately move to the top of your to-do list. After all,
This lack of professionalism is unlikely to
wouldn’t you respond to a message from a client
earn you any more referrals. Of course, there will
stating that they want to list their home or refi-
be times when you’re not immediately available.
nance immediately? It’s imperative that as real estate professionals we understand that our networking partners have the potential to keep our pipelines full of
Responding to your partners promptly should always be a priority.
prospects. That’s why all partners ought to be treated with the same punctual, professional service that we provide to our clients. Failing to
If you are in a day-long seminar, you clearly won’t
respond to their message, even if they don’t
be able to respond at length to the call. But, you
have a referral to give you immediately sends a
need to at least acknowledge that you have
message that you don’t value their efforts.
received their message, and you’ll get back to
If they do have a referral for you, and you
them as soon as you have time available.
delay getting back to them, that’s even worse.
Responding to your partners promptly
For example, consider that you have forged a
should always be a priority. Never expect them
networking partnership with a CPA. Your partner
to leave a message conveying urgency. It’s up to
calls you, and you put off returning the call. By
you to recognize the potential business they can
the time you call the CPA back, they’ve had to
bring you, and treat them as your top priority.
refer the business elsewhere because the client needed to purchase a new property immediate-
Putting Quantity Before Quality
ly in order to avoid Capital Gains taxes. Not only
The second big networking no-no is placing
did you lose the opportunity, but you may have
emphasis on trying to network with as many
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NETWORKING
people as possible, instead of spending quality
partnership. That is, we have to build quality rela-
time networking with fewer people. This hap-
tionships with others, rather than just trying to
pens a lot, especially at networking functions.
amass quantities of contacts.
Many people mistakenly believe that they’ve
Instead of aiming to meet as many contacts
been successful at a networking mixer because
as possible, focus on trying to forge quality rela-
they’ve collected dozens of business cards.
tionships with just a few folks. It only takes one
While technically you are increasing your data-
quality referral partner to increase the quantity
base of contacts, and now have the contact
of business we do. But, accumulating a quantity
information for dozens of professionals, you
of contacts doesn’t mean that any of them will
haven’t really done any work. Successful net-
turn out to be quality partners.
working, true to its name, requires work. We have to work to build trust with our part-
Exploiting the Partnership
ners, before they are likely to feel comfortable
Lastly, the single biggest no-no when it comes to
referring us to others. We have to work to earn
networking is to exploit the partnership you’ve
business, and once we’re so lucky as to receive a
forged with others. While exploiting the partner-
referral, we have to work our hardest to make
ship sounds pretty dramatic, it happens more
sure that the referral is given exceptional cus-
often than it should.
tomer service, or we run the risk of ruining the
Exploitation of the partnership can come in many forms, some of them more obvious than others. For example, you may inadvertently exploit the partnership by misleading your networking partner about your skills, talents, specialties. Even with the best intentions, if you’re not completely forthright about precisely what services you can provide, or what experience you have in certain areas, you run the risk of losing the trust your partner has in you. For example, say a CPA partner comes to you
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NETWORKING
because their client wants to invest in commercial real estate. You’ve only closed one commercial loan in your tenure as an agent. You’re far better off telling that CPA that you’d like to refer them to someone with more commercial experience, so that the client gets expert advice, than to try and do the loan on your own, only to provide less than exceptional service. Other ways that agents inadvertently exploit partnerships is through the sharing of partners’ information with others without obtaining their partners approval. Likewise before you begin signing up your partners for your newsletter, make sure that you have their approval. Avoiding the exploitation of any partnerships you’ve forged through networking is actually quite easy. By being truthful and upfront with all of your partners about your experience, your skills, your goals, your objectives, you’ll never have to worry that you’re abusing the relationship. In networking, remember that the partner-
Ed Craine is CEO of San Francisco-based Smith Craine
ships you’ve forged deserve to be valued just as
Finance. Contact Craine at (415) 406-2330 or
you value the business of your clients. By under-
ecraine@smithcraine.com. Dr. Ivan Misner is a New York
standing that there are three primary network-
Times bestselling author; founder and chairman of BNI
ing “no-no’s” to avoid, you’ll be better positioned
(www.bni.com); and founder and visionary behind the
to keep the relationship going strong for years to
Referral Institute (www.referralintstitute.com). He can be
come.
are
reached at misner@bni.com.
MARCH / APRIL 2009
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DOWN PAYMENT ASSISTANCE
(Re)Introducing PAM A proven method of helping all borrowers meet down payment requirements BY PAUL IMURA
I
n today's economic environment, higher
cept was available previously, demand was
down payments have become more the
muted by the emergence of 100-percent LTV
norm than the exception, as lenders return
financing. To reintroduce PAM, Genworth
to tried and tested underwriting practices that
teamed with the Asian Real Estate Association
balance risk and the desire to help borrowers
of America (AREAA) and Regions Bank to
obtain financing. Those higher down payment
design the concept and to conduct third-party
requirements can, however, pose a significant
research in key markets. The results were prom-
hurdle for certain borrowers, including low- to
ising -- although more than 95 percent of con-
moderate-income and first-time homebuyers.
sumers initially were unfamiliar with the con-
As the mortgage industry has looked to the past for guidance on prudent underwriting,
cept, almost all of them expressed interest in it once they understood how it worked.
Genworth Mortgage Insurance has too. We
Our partners are equally enthusiastic about
revisited Pledged Asset Mortgages, a proven
the program. Jim Park, President of AREAA, said,
method of helping ensure that borrowers of all
“These loans play well with the Asian segment,
types not only meet down payment require-
which traditionally has used multi-generational
ments, but also feel a personal connection and
family pooling of assets to meet payment
investment in their new home.
requirements. Pledged Asset Mortgages will
The PAM (Pledged Asset Mortgage) concept is simple: in order to meet LTV require-
allow families to leverage their assets to help more than one family member.”
ments, the borrower or a family member can
Scott Dickey, Senior Vice President of
pledge CDs or cash as part of a traditional
Capital Markets for Regions sees the product as
down payment on loans with Genworth mort-
“a consumer-friendly alternative to down
gage insurance.
payment that allows consumers to maximize
For example, for loan types, markets, or
the value of their personal savings.”
property types where loan-to-value is capped
Responsible low down payment lending is
at 90 percent, pledged assets would be com-
a key component of a healthy housing market,
bined with a down payment to equal 10 per-
and the shift towards tighter underwriting
cent of the purchase price.
guidelines and requiring more money down
The pledge is typically held in trust for a
will help ensure better long-term loan perfor-
Paul Y. Imura is the US
period time depending on the size of the
mance and restore market confidence. Pledged
Product Innovation Leader
pledge and the loan amortization schedule.
Asset Mortgages provide the additional flexibil-
for Genworth Mortgage
The party making the pledge can withdraw any
ity some borrowers need to meet the new
Insurance. He manages
interest earned on the pledged assets. If the
requirements of high LTV lending. In our tough
product development
loan defaults during the pledge period, the
environment, we need to continue to explore
initiatives with key lenders
pledged assets could be forfeited to the lender
creative ways to ensure safe, affordable options
and industry partners. Paul
(just like a down payment).
for today’s homebuyers. PAM can be one of the
is also a board member of
Although the Pledged Asset Mortgage con-
first steps on the road to recovery.
MARCH / APRIL 2009
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AREAA.
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MINORITY PARTNERSHIPS
H ERE T O H ELP Wells Fargo Continues to Strengthen Minority Partnerships
BY SCOTT HOOVER
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MINORITY PARTNERSHIPS
he name Wells Fargo is synonymous
challenges that some in the Asian American
with the United States. No matter the
community may have — be it language related
era, whether it be during the gold rush,
or cultural — and that is why we have more
the roaring 20s, the Great Depression, the
than 400 Asian American associates working in
swinging 60s or today, Wells Fargo has long
our branches and mortgage offices that can
been a pillar of the U.S. financial industry.
speak many Asian American dialects and
T
Today, as the country suffers through some
understand the different cultural dynamics of
of its toughest financial times in decades, Wells
our Asian American customers. We also contin-
Fargo continues to be the backbone of the U.S.
ue to market our products in many different
financial landscape and an adherent supporter
languages and to educate our Asian American
of minority lending nationwide.
consumers in their native languages.
Reaching Out Nothing better exemplifies how Wells Fargo runs its business than its Vision and Values booklet. For more than 16 years, the company has been guided by this vision and its belief
For more than 16 years, Wells Fargo has been guided by its belief that people are its competitive advantage.
that people are its competitive advantage. In fact, these unchanging values and timetested business diversity are, more than ever, a
One of the largest outreaches recently to
competitive advantage as the financial industry
Asian American homebuyers by Wells Fargo
evolves and consolidates.
was its first-time homebuyer educational semi-
“With our vision and values to guide us, if
nar.
we improve them every day by learning and
“We recently held a first-time homebuyers
sharing with each other, if we listen to our cus-
seminar in Chinatown in San Francisco which
tomers — then solving every problem, seizing
was conducted in Chinese,” says Blackwell. “We
every opportunity, and making every decision
had more than 500 attendees who participated
will be relatively easy,” says Brad Blackwell,
in the seminar and learned, in their native lan-
national sales manager for Wells Fargo Home
guage, what it takes to purchase a home and
Mort-gage. “We show our commitment to
become a first-time homebuyer.”
reach out to ethnic groups every day by locating our mortgage offices and bank branches in
Changing Times
diverse neighborhoods and becoming part of
As we all know, the world economy is changing.
the community.
Home prices have fallen and interest rates are
“We also show our diversity with our sales
at their lowest point in decades. However, for
force,” continues Blackwell. “We understand the
first-time homebuyers, this downturn in the
MARCH / APRIL 2009
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MINORITY PARTNERSHIPS
housing cycle is offering one of the best land-
financial needs, helping them succeed finan-
scapes to purchase in many years.
cially,” says John G. Stumpf, President and CEO
Additionally, with the opportunity is a high-
of Wells Fargo. “Our customers — external and
er level of education about loan products such
internal — are our friends. We work together
as FHA that have not been widely used by the
with them to uncover their financial needs.
Asian American homebuyer in the past.
They’re the center of everything we do. We
“We have seen a huge growth in FHA loan
make decisions from the customer’s perspec-
products over the past couple of years,” says
tive. We want them to feel a part of our team.
Blackwell. “Nationally, only 3 percent of loans
We want them to rave about our service to their
were FHA in 2006. That number grew to a little
families and friends. The greatest honor a cus-
more than 5 percent in 2007 and last year, near-
tomer can pay us is to give us more of their
ly 21 percent of home loans were FHA. What we
business.”
are seeing is a product that was underused by
Wells Fargo also is working hard to keep all
all Americans really becoming relevant again
if its customers, including Asian Americans,
and Wells Fargo is taking steps to make sure all
educated about the new, tougher, lending
homebuyers are educated about FHA loans.”
rules.
In addition, as America has become more
“The lending climate has changed,” says
diversified, Wells Fargo continues to be a leader
Blackwell. “Mortgage products are more vanilla
in reaching out to all minority groups, under-
today, more back to the basics. However, that
standing the rich cultural differences and striv-
doesn’t mean that you can’t get a loan. Our
ing to meet the complex needs of each differ-
team members are working hard to educate
ent group.
our customers about the products that are
“It really comes down to understanding the
available and to educate them that they need
needs of the community,” says Blackwell. “This is
to get pre-approved, which will offer them
not a task. This is a journey. Every journey has a
more bargaining power in the end. We also are
destination. To get to that destination, you
offering a closing guarantee that if the loan
need a vision. Ours is an ambitious one: We
doesn’t close on time, Wells Fargo will pay the
want to satisfy all of our customers’ financial
first month’s mortgage.”
needs, help them succeed financially, and be
Responsible lending is also the key to Wells
the premier provider of financial services in
Fargo’s strength and continued growth.
every one of our markets.”
According to Wells Fargo’s Web site, Wells Fargo
Which brings us back to customers — the lifeblood of Wells Fargo.
Home Mortgage and Wells Fargo Financial have five principles for responsible lending:
“We want to be known by our customers as a financial partner, for outstanding service and sound financial advice, satisfying all of their
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1. Pricing on all loans is fully disclosed and competitive, reflecting a complete view of
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MINORITY PARTNERSHIPS
the customer’s finances, credit history,
gage, or for real estate agents who know of cus-
characteristics of the transaction and
tomers that are struggling, the time to call Wells
property involved.
Fargo is now. “In this stressed economy, we are here to
2. Wells Fargo will make enough information
help our customers stay in their homes,” he
available to the customer to encourage an
says. “Any time you or one of your clients begin
informed decision.
to struggle, you need to contact your Wells Fargo agent immediately so that they can offer
3. Points and fees are capped to maintain
a number of options to help.”
competitive loan pricing based on the consumer’s finances and credit history.
Growth Segment One of the fastest growing segments for Wells
4. Every real estate loan, made through our
Fargo is the growth being seen in ethnic com-
mortgage or consumer finance non-prime
munities. “In general, ethnic group purchase
lending channels, must provide a demon-
value is growing more than the general mar-
strable benefit to the customer or we
ket,” notes Blackwell. “We are working coast to
won’t make the loan.
coast to offer the best available services to Asian Americans and all ethnic groups.”
5. We make diligent efforts to determine that
For example, in March Wells Fargo held its
customers have a high likelihood of repay-
Second Annual CineMeeting. It is here that
ing a loan before they commit to it.
Wells Fargo invites ethnic realtors to cinemas around the country and talks about winning
“We have an excellent track record of helping our borrowers stay in their homes even when
strategies and how to be successful in today’s real estate environment.
financial difficulties arise,” says Stumpf. “Our delin-
“This is just another way that Wells Fargo is
quency and foreclosure rates are significantly
trying to educate and help Asian American and
lower than the industry average. It’s totally con-
ethnic realtors to thrive in today’s challenging
trary to our vision and values to attempt to sell a
market,” notes Blackwell. “These seminars, com-
customer any product or service that’s not in his
bined with our educational seminars to first-
or her best long-term interests. Time and again
time homebuyers and product education are
our customers tell us they recognize and appreci-
the reasons that Wells Fargo continues to be
ate the value of the service we provide them; the
the leader in the United States financial mar-
most significant way they do this is by giving us
ket.”
more of their business.” Blackwell adds that for any customer who
Wells Fargo — here for you now and here for you in the future.
are
might be struggling with their current mort-
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SHORT SALES
Eleven Keys to Getting Your Short Sale Done! BY CHIP CUMMINGS, CMC
L
ife is certainly tougher these days. In real
exactly who is responsible for what, what your
estate today, it is not uncommon to see
role is, and what documentation will be needed
markets with 60 percent, or more, of all
to get the lender to sign off. Here’s a look at each
transactions involving short sales or foreclosure
one:
properties. You may be seeing numbers higher or lower in your area, but one thing is for sure —
1. Situation analysis: Before you start, you
for your business to survive, you need to know
need to get a clear picture of the property’s
how to get these deals done, and get them done
current situation. Do an extensive CMA or get a
quickly.
BPO to know what value you’re dealing with —
With the new “stimulus package” and all the
especially focus on competing properties. It’s
foreclosure bailout plans underway, it would
all a numbers game. Have a real heart-to-heart
seem that there would be a standardized format
talk with the seller so that there are no miscon-
for processing these types of transactions.
ceptions about their situation — and therefore
Unfortunately, for those of you who have
no resistance to their having to walk away from
already ventured into these fresh new waters,
the property (with no cash) in order to save
you have found out that it’s more like the “wild
some time and a lot of legal headaches. After
west” out there, and in most cases — totally void
evaluating the true realistic value and condi-
of any common sense! However, those agents
tion of the subject property, as well as the out-
that do figure out the keys to structuring these
standing balance on the lien(s), you can deter-
deals, will survive — and even thrive during
mine how far under water the property is, and
these turbulent times. So what do you need to
how “short” a sale would be for the lender.
know, and what are the keys for getting everyone to the closing table?
2. Get permission: Once the homeowner is clear on your purpose, mission and dedication
The Eleven Key Steps
to helping them, you will need to obtain a
In my latest book “Cashing In on Pre-foreclo-
signed borrower authorization form prior to
sures and Short Sales” (Wiley & Sons), I put
making any contact with the lender. Trust me,
together a punch list of the key elements for
they won’t speak to you without it. Do NOT try to
getting a short sale deal done. In my interviews
impersonate the homeowner, act as an attorney
with agents from around the country, one com-
or their legal counsel in any way.
mon theme has emerged as the major roadblock to success — communication. Not just
3. Contact lender: While you can certainly get
with the lender, but with all the parties involved.
basic loan information from the lenders online
Before you undertake the process of short
system or through customer service, the real key
sale negotiations with a lender, it is critical that
to success is reaching the right person. Believe it
you understand each of the steps along the way,
or not, the Customer Service Department is
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SHORT SALES
trained to say “no,” and that they do not handle
include compelling reasons why the lender has
or negotiate short sales. They will be no help
to do a short sale, and that the alternative is
whatsoever. Somewhere in a large office build-
either foreclosure or bankruptcy.
ing, deep within the confines of some obscure office cubical, there is someone who has the
5. Get repair estimates: Obtain three separate,
knowledge — and more importantly the
detailed estimates from licensed contractors as
authority — to negotiate a short sale on behalf
to what the costs would be to bring the proper-
of the lender.
ty back up to marketable condition. If the prop-
Start out by contacting the “loss mitigation”
erty does go to foreclosure, you want to be able
or legal department, or try calling the person
to illustrate what costs the lender would have
listed on the delinquency letters from the
to incur (losses) right away just to get it on the
lender to the homeowner. Try to make initial
market. Take pictures of every aspect of the
contact while the borrower is right there — it’s
home. 6. Supporting documentation: Working with
Put together supporting documents to prove hardship and paint a crystal clear picture for the lender.
the owner, put together supporting documents to prove the hardship and paint a crystal clear picture for the lender. These should include financial statements, paycheck stubs, bank statements, tax returns, credit reports, medical bills, divorce decree, collection notices,
easier in case the lender wants to receive verbal
and so on. Again, take lots of pictures! Inside,
authorization as well. That will open the door,
outside, upside down — everything. Use any-
but you’ll still have a long walk down a dark
thing and everything that can support the fact
red-tape-filled hallway to actually get to the
that this borrower is ready to call it quits and
right person. Document every contact. Find out
will make life miserable for the lender. The
who needs to get the actual short sale package
lender doesn’t want the house back, and this
proposal, and make sure you have complete
will work in your favor.
contact information — including street address and email.
7. Purchase agreement: The next step is to negotiate with your client and the homeown-
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4. Write the hardship letter: Next, the borrow-
er, and get them to agree as to the purchase
er will have to write a detailed letter regarding
price and payoff amounts to the lender. The
his or her situation. This better be good too, as
borrower must net ZERO at the closing, or the
it has to sell the lender on the fact that there are
lender will not go along with the short sale.
no other practical options. The letter must
Make sure to include your commission in the
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SHORT SALES
calculations. The lender knows this is a cost of
need to get further approval from the end ser-
the transaction, and don’t let them short-
vicer or owner of the loan, but many specialists
change you.
are given approval authority to make the decision alone, within certain guidelines.
8. Submit the package: Once you have everything together, submit the short sale package
11. Close the deal: Once you have a green light
to the lender demonstrating that this is the
from the lender, be ready to go. The lender will
best solution for them. You MUST include a
issue an approval letter to accept a short sale
financial comparison of your proposed solution
payoff, but it will only be valid for up to 30 days
— as opposed to them having to go through a
in most circumstances. Have everybody ready
foreclosure. Don’t be overly concerned with the
to close the deal quickly.
amount of their loss, as some or all of this will probably be insured — and it’s still far less than
The Key to Success
they will lose if they have to take the property
The real key to successfully closing a short sale
back. Do NOT submit the package without a
transaction is persistence combined with
signed Purchase Agreement! Send the package
patience. Although time is short, you will run
via overnight mail.
into many brick walls along the way. It will take a lot of “no’s” to get to the right person,
9. Lender evaluation: If you’ve done your job
and require your best people skills to present
correctly, the package should read like a book,
your solution once you find that key individ-
and you’ll get prompt attention. The lender will
ual. You will be tested by otherwise seemingly
still get their own broker price opinion, and
rational people who demonstrate little com-
may come back with a counter-offer, but the
mon sense, and you’ll repeat yourself at least
numbers are what they are. Be careful — if this
1,422 times.
is a government-insured loan, then you will
You will take on the role of mother, brother,
also have to adhere to certain formulas and file
friend and personal financial advisor to a
specific forms as part of the short sale process.
homeowner that is emotionally and mentally distraught, and you’ll be unable to bill them for
10. Negotiate with lender: As they review your
the hours of psychiatric care you dispense.
package, you may go back and forth a couple of
Nonetheless, you’ll have developed a close
times on the details. Use this to develop a rap-
contact at the lending institution, have a buyer
port with the loss mitigation specialist, and help
that believes you walk on water, and earn a
them understand the totality of the situation.
commission check that might pay next month’s
They are only looking at numbers on a comput-
expense account.
er screen and a stack of files, so you need to put a “face” on the package. Sometimes they will
What a way to make a living — it’s a good thing we love what we do!
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CAPITAL TIMES: AREAA in Washington, D.C. BY SCOTT HOOVER
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A VOICE IN WASHINGTON
When the Asian Real Estate Association of America (AREAA) formed, its mission was and remains simple and straight-forward: “AREAA is a national professional trade organization dedicated to promoting homeownership opportunities in Asian American communities by creating a powerful national voice for housing and real estate professionals that serve this dynamic market.”
n order to be considered a national voice, leaders of AREAA astutely summarized that it was vital for the organization to be represented in our nation’s capital, where so many decisions are made on a daily basis. Therefore, when the opportunity arose early in 2008 to add a chapter in the Washington D.C. metro area, the leaders of AREAA jumped at the chance. Today, a little more than one year later membership has grown to more than 300, the chapter has established solid relationships with many of the local real estate groups and has caught the ear of some of the most powerful decision makers in D.C.
I
Capital Mission Within AREAA’s mission statement, it explains that one of the organization’s goals is to advocate for policy positions at the national level which will reduce homeownership barriers facing the Asian American community. By establishing a chapter in the nation’s capital, the organization took a huge step in that direction. “When I first sat down with AREAA President and CEO
Jim Park, we discussed how important it was to have a chapter in the nation’s capital and how vital it would be to talk to decision makers about the goals for the organization,” says Song Hutchins, Founding Chair of the DC-Metro Chapter of AREAA. And, what the DC-Metro Chapter has done — and is doing in cities nationwide — is bringing together a very diverse group of Asian Americans under one association. “We represent more than just one nationality. We represent a broad array of real estate, mortgage and housing-related professionals that serve the diverse Asian American market,” says Hutchins. “AREAA is the only trade association dedicated to representing the interests of the Asian real estate market nationwide.” Capital Numbers The Washington D.C. area (including Baltimore and northeastern Virginia), is home to nearly 400,000 Asian Americans or nearly 8 percent of the more than 5 million residents who call this part of the country home. And, although the DCMetro Chapter has been around for a lit-
MARCH / APRIL 2009
tle more than one year, it has made an immediate impact and has made a difference in the following ways:
»
By bridging the homeownership gap facing the Asian American community. The DC-Metro Chapter has been the magnet for Asian American professionals in the nation’s capital.
»
Forming allegiances and alliances with Asian communities and other communities
»
Providing a strong awareness in maintaining the highest professional standards and business ethics in conducting real estate and mortgage related business
»
Providing members and consumers resources and contributing to the success of the real estate and mortgage industries
Education The Key Hutchins believes that one of the most important aspects of AREAA and specifically, the DC-Metro Chapter is to provide
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A VOICE IN WASHINGTON
vital education to Asian American real estate and housing professionals. “We have held a number of educational seminars to help inform and teach local professionals about today’s ever-changing housing market and keep to them up-todate on current events,” says Hutchins. “For example, we have held seminars on foreclosure, short sales and loan modification and we have been averaging between 60 and 80 attendees for each of those seminars. I believe the numbers support what we are doing and shows us that we have a group that is very interested in learning about today’s challenging market and helping to keep their clients informed.” Since Asian Pacific Americans are among one of the fastest growing popu-
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lations in the country and because most are first generation Americans, they face significant language, cultural and knowledge barriers, which have kept the homeownership rate relatively unchanged over the past two decades. Hutchins says this is another area the DC-Metro Chapter is focusing on. “We continue to work on getting documents in native languages and also to be able to provide translators for Asian Americans so they are able to understand the process that is taking place,” adds Hutchins. “It is a slow process but we are taking steps to bridge these challenges and address the needs of all Asian Americans.” Developing partnerships is another
MARCH / APRIL 2009
area where the DC-Metro Chapter is working on behalf of its members. “One of the strongest partnerships that we have formed is with the Northern Virginia Association of Realtors,” says Vinh Nguyen, President DC Metro Chapter. “The organization has more than 11,000 members and we continue to work with them and have their support, which is very important to our growth in the community. “We believe the DC-Metro Chapter will be the avenue to reach out and form positive alliances with all ethnicities,” continues Vinh. “Forming a strategic coalition will help promote future legislations that will serve the best interests f the commuare nity and the nation.”
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S A V E T H E D A T E
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